eicher motors ltd. absolute : reduce ), tp ( waiting periods...

November 15, 2017 Analyst: AshutoshTiwari [email protected] (+91-8128694112) of 12

Before reading this report, you must refer to the disclaimer on the last page.

Eicher Motors Ltd. Absolute : REDUCE

Relative : UNDERWEIGHT

2QFY18 Result: Estimate (), TP (), Rating () Regular Coverage 2% Downside in 14Months

Waiting periods coming down, valuations expensive – maintain REDUCE Auto OEM

© 2017EquirusAll rights reserved

Rating Information

Price (Rs) 30,070

Target Price (Rs) 30,516

Target Date 31st Dec'18

Target Set On 9th Aug'17

Implied yrs of growth (DCF) 15

Fair Value (DCF) 24,347

Fair Value (DDM) 5,530

Ind Benchmark BSEAUTO

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 818,571

Free Float (%) 49.4%

52 Wk H/L (Rs) 33483.95/19530

Avg Daily Volume (1yr) 50,304

Avg Daily Value (Rs Mn) 1,356

Equity Cap (Rs Mn) 272

Face Value (Rs) 10

Bloomberg Code EIM IN

Ownership Recent 3M 12M

Promoters 50.6% 0.0% -4.3%

DII 4.0% 0.2% 0.8%

FII 32.5% -0.1% 3.6%

Public 12.9% -0.1% -0.2%

Price % 1M 3M 12M

Absolute -4.2 % -1.0 % 38.7 %

Vs Industry -4.7 % -6.4 % 17.7 %

HEROMOTOCO -2.9 % -7.6 % 22.9 %

BAJAJ-AUTO 3.5 % 15.5 % 23.5 %

Standalone Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 124.4 146.2 153.2 151.9

EPS (18E) 162.9 179.1 194.3 201.4

Eicher Motors’ (EIM) 2Q results came marginally below EE due to lower-than-expected

ASPs, which declined 2% qoq. Royal Enfield (RE) recently launched its first twin-

cylinder models, Interceptor 650 Roadstar and Continental GT 650 Café Racer, based

on 648cc engine; management believes these models would help it garner volumes in

export markets, similar to what Classic 350 did in India. Our channel checks indicate

that waiting periods have come down over last one year, but bookings are still more

than monthly sales. We largely maintain estimates and reiterate REDUCE on the stock

due to expensive valuations. Our Dec’18 TP stands at Rs 30,516 (vs. Rs 30,833 earlier). Waiting periods reduce on most RE bikes: Last year around the same time, waiting

periods on Classic 350 was around 2-3 months, while other models were available in

15-30 days. Our recent channel checks indicate that waiting periods on most models

are in the range of 20-30 days, and at some places 45 days. However, recently-

launched color options, Classic 500 Stealth Black and Classic 350 Gunmetal Grey,

have a 2-3 month waiting period. Most dealers indicated that bookings are still higher

than retail sales during a month. Targeting export market with new twin-cylinder bike: EIM is primarily targeting

ASEAN and Latin American markets with its new twin-cylinder bike, and expects it to

yield similar results as Classic 350 in India. The 650cc bike also provides a larger

range from 350cc-650cc to RE, in line with management’s stated 250-700cc target

segment. RE - 21% yoy volume growth drives 25% EBITDA growth, 2% below EE: With new

plant starting operations in August, volumes improved 10% qoq. Realizations however

declined 2% qoq likely due to product mix changes. EBITDA margin improved 55bps

yoy to 31.9%; however, the quantum of improvement over last few years has

reduced, indicating that RE may be close to attaining saturated margin levels.

Increasing RM prices may have also curbed margin gains. Strong VECV performance: VECV delivered a strong 50% yoy EBITDA growth driven

by 14% volume growth and 200bps EBITDA margin improvement. While discounting in

CV market was very high in 2Q, we believe margins were aided by 50% yoy growth in

volume of medium-duty engines (better margin segment).

Estimate Revision:

Current

Change from previous

(%)

Rs Mn FY18E FY19E FY18E FY19E

Sales 88,936 104,160 -0.6% -1.0%

EBITDA 27,996 33,013 -0.6% -1.1%

PAT 21,690 25,947 -1.7% -1.6%

EPS 802.2 957.5 -1.4% -1.6%

Consolidated Financials

Rs. Mn YE Dec FY17A FY18E FY19E FY20E

Sales 70,334 88,936 104,160 124,348

EBITDA 21,740 27,996 33,013 39,744

Depreciation 1,538 2,143 2,711 2,982

Interest Expense 36 31 17 17

Other Income 2,273 3,013 3,333 4,966

Reported PAT 16,647 21,739 25,947 32,086

Recurring PAT 16,671 21,690 25,947 32,086

Total Equity 53,450 70,296 90,535 116,097

Gross Debt 444 0 0 0

Cash 33,228 45,213 65,392 91,309

Rs Per Share FY17A FY18E FY19E FY20E

Earnings 614.3 802.2 957.5 1,184.0

Book Value 1,972 2,594 3,341 4,284

Dividends 100.0 150.0 175.0 200.0

FCFF 899.4 550.6 854.5 1,078.9

P/E (x) 49.0 37.5 31.4 25.4

P/B (x) 15.2 11.6 9.0 7.0

EV/EBITDA (x) 36.2 27.7 22.9 18.3

ROE (%) 37 % 35 % 32 % 31 %

Core ROIC (%) 306 % 216 % 194 % 235 %

EBITDA Margin (%) 31 % 31 % 32 % 32 %

Net Margin (%) 24 % 24 % 25 % 26 %

Eicher Motors Ltd. Absolute –REDUCE Relative –UNDERWEIGHT 2% Downside in 14 Months


Earnings call takeaways

In 2QFY18, EIM posted its best-ever quarterly performance with highest-ever net

income and EBITDA.

Topline from operations stood at Rs 21.67bn in 2QFY18 vs. Rs 17.55bn in 2QFY17, a

24% growth yoy.

EBITDA was also the highest at Rs 6.83bn in 2QFY18 vs. Rs 5.42bn in 2QFY17, a 26%

growth yoy.

EIM enjoys industry-leading EBITDA margin of 31.5%.

Polaris JV saw a steady performance for 2QFY18. The JV expanded its footprint in

Bangladesh and Nepal.

RE

RE registered its best-ever quarterly sales of 202,744 motorcycles, up ~22% yoy.

Retail footprint expanded to ~750 locations in India, with the run-rate of 100-150

dealers per year. The focus is to expand the network in tier C/D cities.

RE unveiled two new motorcycles - the Interceptor 650 Roadster and the Continental

GT 650 Café; the commercial launch of these motorcycles is expected in Apr’18. RE

aims to lead and expand the mid-weight (250-750cc) motorcycle segment globally

and is confident to get a boost from these new models.

Management is confident of gaining incremental share in South East Asia and other

developed motorcycle markets.

No price hike has been taken in the last one year.

West and south India contribute close to 50% of RE’s volumes.

In India’s top-25 cities, RE booking numbers are growing at a double-digit rate.

In Aug’17, RE commenced commercial production at its third manufacturing facility

at Vallam Vadagal near Chennai. While currently around ~7,000 vehicles/month are

being rolled from the new plant, its peak capacity is ~25,000 vehicles/month.

In Sep’17, RE launched two variants of its bestselling motorcycle model, Classic -

Stealth Black in 500cc and Gunmetal Grey in 350cc.

RE opened its first store in Bali, Indonesia, thus spreading its footprint in the

international market.

In October, RE forayed into Vietnam – the fourth biggest motorcycle market in the

world - and opened its first store in Ho Chi Minh City.

Production target for this fiscal is 825,000 vehicles. Currently, the company is

planning to do 75,000 vehicles per month by FY18-end.

New dealers are pulling in less number of volumes as compared to existing dealers

since they are in much smaller towns.

The company has a service base of over 7,500 touch-points across India.

In the international market, RE has got a good distribution reach in developed

markets; in emerging markets, it is in the process of expanding its dealership

network. About 30 stores in international markets are exclusive RE stores, while

there are significant multi-brand stores selling RE vehicles globally.

VECV

Total income from operations stood at Rs 23.39bn in 2QFY18 vs. Rs 19.72bn in

2QFY17, up 18.6%.

EBITDA increased 50% yoy to Rs 2.15bn in 2QFY18 from Rs 1.43bn in 2QFY17.

EBITDA margins grew by 200bps to 9.2% from 7.2% in the year-ago quarter.

PAT was at Rs 950mn in 2QFY18 vs. Rs 660mn in 2QFY17, a growth of 45%.

Market share has come down from 13.6% in 2QFY17 to 13%, though volumes have

grown.

The CV industry started recovering in 2QFY18 and has grown at about 17%.

Segment wise:

o Up to 5 ton: VECV’s market share grew to 24% from 21% last year.

o For 5-15ton: VECV’s market share declined marginally.

o HD: VECV lost market share from 5 to 4.5%.

o Bus: Market share increased from 15 to 15.8%.

o VECV also gained share in exports.

In terms of Engines, EIM sold ~9,000 units in the quarter, thus averaging at ~3,000

engines per month against ~2,000 per month last year.



Exhibit 1: VECV consolidated results 2QFY18

Rs mn 2QFY18 2QFY17 % Growth

Total income from operations (net of excise duty) 23,390 19,720 18.6%

EBITDA 2,150 1,430 50.4%

EBITDA% 9.2% 7.2%

PAT 950 660 44.9%

Exhibit 1:VECV segment-wise quarterly sales volumes

Source:Company, Equirus Securities

Exhibit 2:EBITDA margin vs. % contribution of different segment to volumes


Exhibit 3:Quarterly RE sales volume vs. EBITDA margins


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1Q

CY13

2Q

CY13

3Q

CY13

4Q

CY13

1Q

CY14

2Q

CY14

3Q

CY14

4Q

CY14

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

5Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

LMD Bus HD Exports 55%

40%

54%

57%

50%

41%

52%

55%

48%

39%

48%

51%

45%

44%

51%

19%

29% 19%

12%

23%

34%

15%

12%

21%

27%

20%

15%

22%

30%

15%

14%

13%

14%

15%

17%

15%

17%

18%

21%

20%

17%

17%

22%

12%

19%

11%

17%

13%

16%

9%

10%

16%

15%

11%

15%

14%

17%

11%

14%

15%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0%

20%

40%

60%

80%

100%

1Q

CY14

2Q

CY14

3Q

CY14

4Q

CY14

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

5Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

LMD Bus HD Exports EBITDA Margin

0%

5%

10%

15%

20%

25%

30%

35%

0

50,000

100,000

150,000

200,000

250,000

1Q

CY13

2Q

CY13

3Q

CY13

4Q

CY13

1Q

CY14

2Q

CY14

3Q

CY14

4Q

CY14

1Q

CY15

2Q

FY16

3Q

FY16

4Q

FY16

5Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

Volumes EBITDA Margin - RHS



Quarterly performance, standalone

Rs mn 2QFY18 2QFY18E 1QFY18 2QFY17 % Change

Comments 2QFY18E 1QFY18 2QFY17

Net Sales 21,636 22,050 19,999 17,625 -2% 8.2% 23%

Consumption of raw Material & Components 11,270 11,664 10,591 9,161 -3% 6% 23%

Employee Cost 1,302 1,147 1,160 956 14% 12% 36%

Other Expenditure 2,164 2,227 1,971 1,984 -3% 10% 9%

Total Expenditures 14,736 15,038 13,722 12,101 -2% 7% 22%

EBITDA 6,901 7,012 6,278 5,524 -2% 10% 25%

Depreciation 490 477 450 358 3% 9% 37%

EBIT 6,411 6,535 5,827 5,166 -2% 10% 24%

Interest 7 0 7 8

Other Income 699 652 1,294 665 7% -46% 5%

PBT 7,103 7,187 7,115 5,823 -1% 0% 22%

Tax 2,239 2,156 2,172 1,862 4% 3% 20%

Recurring PAT 4,864 5,031 4,943 3,962 -3% -2% 23%

Extraordinaries -57 0 7 -4

Reported PAT 4,921 5,031 4,936 3,965 -2% 0% 24%

EPS (Rs) 179.5 185.6 182.4 146.2 -3% -2% 23%

EBITDA Margin 31.9% 31.8% 31.4% 31.3% 9 bps 50 bps 55 bps

EBIT Margin 29.6% 29.6% 29.1% 29.3% -1 bps 49 bps 32 bps

PBT Margin 32.8% 32.6% 35.6% 33.0% 24 bps -275 bps -21 bps

PAT Margin 22.7% 22.8% 24.7% 22.5% -7 bps -194 bps 25 bps

Tax Rate 31.5% 30.0% 30.5% 32.0% 152 bps 99 bps -45 bps

Royal Enfield

Volume 202,865 202,865 183,998 166,941 0% 10% 21.5%

ASP (Rs/unit) 108,691 108,691 108,691 105,576 0% 0.0% 3.0%

EBITDA/bike (Rs) 34,015 34,564 34,117 33,089 -2% 0% 3%

Cost items as % of Sales

RM 52.1% 52.9% 53.0% 52.0% -81 bps -87 bps 11 bps

Employee Cost 6.0% 5.2% 5.8% 5.4% 82 bps 22 bps 59 bps

Other Expenses 10.0% 10.1% 9.9% 11.3% -10 bps 15 bps -126 bps



Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 802.2 811.9 -1 % Broadly in-line with consensus

FY19E 957.5 1,022.6 -6 %

Sales FY18E 88,936 90,283 -1 %

FY19E 104,160 125,664 -17 %

PAT FY18E 21,739 17,023 -2 %

FY19E 25,947 22,169 -7 %

Key Drivers:

FY17A FY18E FY19E FY20E

Standalone Business

Royal Enfield volumes 666,490 824,475 948,406 1,090,666 Price 105,598 107,758 109,729 113,927 EBITDA margin 31.3% 31.8% 32.0% 32.2%

VECV Volumes 57,441 57,859 62,986 69,284 Sales 87,371 92,970 103,186 115,510 EBITDA margin 7.7% 8.9% 9.2% 9.2%

Risk to Our View: Increase in steel prices, increase in tire prices, and prolonged

slowdown in domestic demand.

Key Triggers

Fall in waiting periods of RE models

Sensitivity to Key Variables % Change % Impact on EPS

Steel Price 10 % -5 %

- - -

- - -

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

6.8 % 0.8 11.6 % 3.0 % 0.0 %

- FY18E FY19E FY20-22E FY23-27E FY28-32E

Sales Growth 26 % 17 % 18 % 16 % 15 %

NOPAT Margin 20 % 20 % 20 % 20 % 20 %

IC Turnover 8.32 9.56 11.57 5.16 5.20

RoIC 216.5 % 193.8 % 248.9 % 120.7 % 113.8 %

Years of strong growth 1 1 5 10 15

Valuation as on date (Rs) 7,515 8,463 11,716 16,108 21,527

Valuation as of 30th Sep’18 8,499 9,571 13,251 18,218 24,347

By doing SOTP valuation, we derive our Dec’18 TP of Rs 30,516. Our DCF-based valuation

suggests a Dec’18 fair value of Rs 24,347.

Company Description:

Eicher Motors manufactures cruiser bikes (under Royal Enfield) brand. It produces Eicher

brand trucks through a 54-46 JV with Volvo (VECV), wherein the company is setting up a

new facility for manufacturing Medium Duty engines for Volvo’s global requirements.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

Eicher Motors REDUCE 30,070 818,571 30,516 31stDec'18 614.3 802.2 957.5 49.0 37.5 31.4 1,972.3 11.6 37 % 35 % 32 % 0.3 % 0.5 %

Hero Motocorp REDUCE 3,656 729,992 3,613 31st Dec'18 169.1 183.0 192.1 22.6 20.9 19.9 508.5 6.6 36 % 34 % 31 % 2.2 % 2.4 %

Bajaj Auto REDUCE 3,270 946,288 2,974 31st Dec'18 141.0 144.9 160.1 22.8 22.2 20.1 617.1 4.7 26 % 22 % 22 % 1.7 % 1.9 %



Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Revenue 15,557 17,549 18,348 18,881 20,006 21,673 23,185 24,072 23,739 25,419 26,488 28,515 70,334 88,936 104,160 124,348 Consumption of raw Material & Components

8,314 9,116 9,691 9,925 10,573 11,285 12,259 12,732 12,536 13,442 14,006 15,082 37,045 46,849 55,066 65,746

Employee Cost 906 1,000 1,058 1,060 1,206 1,355 1,224 1,248 1,232 1,373 1,366 1,442 4,024 5,033 5,414 6,152

Other Expenditure 1,638 2,011 1,829 2,048 2,021 2,208 2,367 2,463 2,447 2,608 2,701 2,912 7,526 9,059 10,667 12,706 EBITDA 4,700 5,422 5,770 5,848 6,207 6,825 7,334 7,629 7,524 7,996 8,414 9,079 21,740 27,996 33,013 39,744 Depreciation 392 359 356 432 452 492 571 628 653 668 683 707 1,538 2,143 2,711 2,982 EBIT 4,308 5,063 5,414 5,416 5,755 6,334 6,763 7,001 6,871 7,328 7,731 8,373 20,201 25,853 30,303 36,762 Interest 7 8 10 11 11 13 3 4 5 6 3 4 36 31 17 17 Other Income 468 665 590 551 777 699 727 809 287 897 1,015 1,135 2,273 3,013 3,333 4,966 PBT 4,769 5,720 5,995 5,956 6,521 7,020 7,488 7,806 7,153 8,219 8,744 9,503 22,439 28,835 33,618 41,711 Tax 1,473 1,840 2,000 1,890 2,175 2,243 2,360 2,343 2,328 2,495 2,737 2,852 7,203 9,122 10,412 12,840 PAT bef. MI & Assoc. 3,296 3,879 3,995 4,066 4,346 4,777 5,127 5,463 4,825 5,724 6,006 6,651 15,236 19,713 23,206 28,871 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Profit from Assoc. 467 252 187 528 250 403 623 700 514 648 753 825 1,435 1,977 2,741 3,215 Recurring PAT 3,763 4,132 4,182 4,594 4,596 5,180 5,751 6,163 5,340 6,372 6,759 7,476 16,671 21,690 25,947 32,086 Extraordinaries 17 3 11 -7 14 -55 0 0 0 0 0 0 24 -49 0 0 Reported PAT 3,746 4,129 4,171 4,601 4,582 5,236 5,751 6,163 5,340 6,372 6,759 7,476 16,647 21,739 25,947 32,086

EPS (Rs) 138.23 152.35 153.90 169.78 169.07 193.19 212.21 227.41 197.04 235.13 249.42 275.87 614.26 802.18 957.46 1,183.97

Key Drivers

Royal Enfield Volume (Nos) 147,483 166,941 173,838 178,228 183,731 202,744 215,000 223,000 218,000 233,156 240,800 256,450 666,490 824,475 948,406 1,090,666 Standalone Revenue (Rs Mn) 15,575 17,625 18,336 18,844 19,999 21,636 23,173 24,036 23,732 25,382 26,476 28,479 70,380 88,844 104,068 124,256 VECV Volume (Nos) 15,914 13,149 11,462 16,916 11,501 14,771 14,671 16,916 12,881 14,727 16,432 18,946 57,441 57,859 62,986 69,284 - - - - - - - - - - - - - - - - - Standalone Margin 26.1% 27.2% 28.6% 29.6% 30.8% 31.3% 31.7% 32.0% 32.0% 31.8% 31.9% 32.0% 31.3% 31.9% 32.0% 32.2%

Subsidiary Margin 8.0% 7.6% 7.4% 8.2% 8.5% 6.7% 8.1% 8.7% 8.9% 9.0% 8.9% 9.3% 7.5% 8.0% 9.0% 9.3%

Sequential Growth (%)

Revenue -59 % 13 % 5 % 3 % 6 % 8 % 7 % 4 % -1 % 7 % 4 % 8 % - - - - Consumption of raw Material & Components

-66 % 10 % 6 % 2 % 7 % 7 % 9 % 4 % -2 % 7 % 4 % 8 % - - - -

EBITDA -27 % 15 % 6 % 1 % 6 % 10 % 7 % 4 % -1 % 6 % 5 % 8 % - - - - EBIT -19 % 18 % 7 % 0 % 6 % 10 % 7 % 4 % -2 % 7 % 6 % 8 % - - - - Recurring PAT 12 % 10 % 1 % 10 % 0 % 13 % 11 % 7 % -13 % 19 % 6 % 11 % - - - -

EPS 12 % 10 % 1 % 10 % 0 % 14 % 10 % 7 % -13 % 19 % 6 % 11 % - - - -

Yearly Growth (%)

Revenue -47 % -44 % -45 % -50 % 29 % 24 % 26 % 27 % 19 % 17 % 14 % 18 % -46 % 26 % 17 % 19 % EBITDA 9 % 10 % 12 % -9 % 32 % 26 % 27 % 30 % 21 % 17 % 15 % 19 % 4 % 29 % 18 % 20 % EBIT 22 % 25 % 30 % 2 % 34 % 25 % 25 % 29 % 19 % 16 % 14 % 20 % 18 % 28 % 17 % 21 % Recurring PAT 70 % 62 % 54 % 37 % 22 % 25 % 38 % 34 % 16 % 23 % 18 % 21 % 54 % 30 % 20 % 24 %

EPS 69 % 62 % 54 % 38 % 22 % 27 % 38 % 34 % 17 % 22 % 18 % 21 % 54 % 31 % 19 % 24 %

Margin (%)

EBITDA 30 % 31 % 31 % 31 % 31 % 31 % 32 % 32 % 32 % 31 % 32 % 32 % 31 % 31 % 32 % 32 % EBIT 28 % 29 % 30 % 29 % 29 % 29 % 29 % 29 % 29 % 29 % 29 % 29 % 29 % 29 % 29 % 30 % PBT 31 % 33 % 33 % 32 % 33 % 32 % 32 % 32 % 30 % 32 % 33 % 33 % 32 % 32 % 32 % 34 %

PAT 24 % 24 % 23 % 24 % 23 % 24 % 25 % 26 % 22 % 25 % 26 % 26 % 24 % 24 % 25 % 26 %



Consolidated Financials

P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 70,334 88,936 104,160 124,348 Equity Capital 272 271 271 271 PBT 22,439 28,835 33,618 41,711

Op. Expenditure 48,594 60,941 71,147 84,604 Reserve 53,179 70,025 90,264 115,826 Depreciation 1,538 2,143 2,711 2,982

EBITDA 21,740 27,996 33,013 39,744 Networth 53,450 70,296 90,535 116,097 Others -24 49 0 0

Depreciation 1,538 2,143 2,711 2,982 Long Term Debt 444 0 0 0 Taxes Paid 7,203 9,122 10,412 12,840

EBIT 20,201 25,853 30,303 36,762 Def Tax Liability 1,441 1,886 1,886 1,886 Change in WC 2,191 2,974 2,370 2,988

Interest Expense 36 31 17 17 Minority Interest 0 0 0 0 Operating C/F 18,941 24,879 28,286 34,841

Other Income 2,273 3,013 3,333 4,966 Account Payables 8,327 17,787 20,832 25,040 Capex -5,956 -9,977 -5,141 -5,615

PBT 22,439 28,835 33,618 41,711 Other Curr Liabi 6,244 5,232 6,127 7,315 Change in Invest 11,364 0 0 0

Tax 7,203 9,122 10,412 12,840 Total Liabilities & Equity 69,907 95,201 119,380 150,337 Others 0 0 0 0

PAT bef. MI & Assoc. 15,236 19,713 23,206 28,871 Net Fixed Assets 8,728 17,835 18,012 17,430 Investing C/F 5,408 -9,977 -5,141 -5,615

Minority Interest 0 0 0 0 Capital WIP 3,738 2,093 0 0 Change in Debt 218 -444 0 0

Profit from Assoc. 1,435 1,977 2,741 3,215 Others 19,491 19,862 24,209 27,423 Change in Equity 273 -1 0 0

Recurring PAT 16,671 21,690 25,947 32,086

Inventory 3,359 7,310 8,561 10,220 Others 2,067 -2,471 -2,967 -3,309

Extraordinaires 24 -49 0 0 Account Receivables 500 5,361 6,278 7,495 Financing C/F 2,558 -2,916 -2,967 -3,309

Reported PAT 16,647 21,739 25,947 32,086 Other Current Assets 863 -2,473 -3,072 -3,540 Net change in cash 26,907 11,985 20,178 25,917

FDEPS (Rs) 614.3 802.2 957.5 1,184.0 Cash 33,228 45,213 65,392 91,309 RoE (%) 37 % 35 % 32 % 31 %

DPS (Rs) 100.0 150.0 175.0 200.0 Total Assets 69,907 95,201 119,380 150,337

RoIC (%) 36 % 34 % 32 % 31 %

CEPS (Rs) 671.9 879.4 1,057.5 1,294.0 Non-cash Working Capital -9,848 -12,822 -15,191 -18,179

Core RoIC (%) 306 % 216 % 194 % 235 %

FCFPS (Rs) 899.4 550.6 854.5 1,078.9 Cash Conv Cycle -51.1 -52.6 -53.2 -53.4 Div Payout (%) 0 % 23 % 22 % 20 %

BVPS (Rs) 1,972.3 2,594.0 3,340.8 4,284.0 WC Turnover -7.1 -6.9 -6.9 -6.8 P/E 49.0 37.5 31.4 25.4

EBITDAM (%) 31 % 31 % 32 % 32 % FA Turnover 5.6 4.5 5.8 7.1 P/B 15.2 11.6 9.0 7.0

PATM (%) 24 % 24 % 25 % 26 % Net D/E -0.6 -0.6 -0.7 -0.8 P/FCFF 33.4 54.6 35.2 27.9

Tax Rate (%) 32 % 32 % 31 % 31 % Revenue/Capital Employed 1.5 1.4 1.3 1.2 EV/EBITDA 36.2 27.7 22.9 18.3

Sales Growth (%) 14 % 26 % 17 % 19 %

Capital Employed/Equity 1.0 1.0 1.0 1.0

EV/Sales 11.2 8.7 7.2 5.9

FDEPS Growth (%) 24 % 31 % 19 % 24 %

Dividend Yield (%) 0.3 % 0.5 % 0.6 % 0.0 %

TTM P/E vs. 2 yr forward EPS growth TTM P/B vs. 2 yr forward RoE

20x

30x

40x

50x

10x

0%

20%

40%

60%

80%

100%

-5000

5000

15000

25000

35000

Dec/06

Aug/07

Apr/08

Dec/08

Aug/09

Apr/10

Dec/10

Aug/11

Apr/12

Dec/12

Aug/13

Apr/14

Dec/14

Aug/15

Apr/16

Dec/16

Aug/17

Apr/18

Dec/18

EPS Growth

0%

10%

20%

30%

40%

0

10000

20000

30000

40000

50000

60000

Dec/06

Aug/07

Apr/08

Dec/08

Aug/09

Apr/10

Dec/10

Aug/11

Apr/12

Dec/12

Aug/13

Apr/14

Dec/14

Aug/15

Apr/16

Dec/16

Aug/17

Apr/18

Dec/18

RoE16x

3x

6x

9x

12x



Historical Consolidated Financials

P&L (Rs Mn) CY13A CY14A FY16A FY17A

Balance Sheet (Rs Mn) CY13A CY14A FY16A FY17A

Cash Flow (Rs Mn) CY13A CY14A FY16A FY17A

Revenue 68,098 87,383 61,735 70,334 Equity Capital 270 271 272 272 PBT 6,706 9,926 17,290 22,439

Op. Expenditure 60,966 76,235 44,839 48,594 Reserve 20,284 24,888 36,259 53,179 Depreciation 1,300 2,198 1,366 1,538

EBITDA 7,132 11,148 16,896 21,740 Networth 20,554 25,159 36,531 53,450 Others -831 -6,480 -6,747 -24

Depreciation 1,300 2,198 1,366 1,538 Long Term Debt 1,573 584 226 444 Taxes Paid 1,504 -2,810 -6,343 7,203

EBIT 5,832 8,950 15,530 20,201 Def Tax Liability 1,805 3,291 809 1,441 Change in WC 1,491 2,020 4,565 2,191

Interest Expense 79 98 21 36 Minority Interest 10,397 10,851 0 0 Operating C/F 7,162 10,475 22,817 18,941

Other Income 953 1,074 1,781 2,273 Account Payables 17,476 15,127 7,232 8,327 Capex -7,054 -9,682 -10,622 -5,956

PBT 6,706 9,926 17,290 22,439 Other Curr Liabi 1,561 9,066 4,592 6,244 Change in Invest -1,577 -1,202 -5,035 11,364

Tax 1,452 2,909 5,389 7,203 Total Liabilities & Equity 53,365 64,076 49,390 69,907 Others 733 -1,261 850 0

PAT bef. MI & Assoc. 5,254 7,017 11,901 15,236 Net Fixed Assets 16,561 23,093 7,942 8,728 Investing C/F -7,898 -12,145 -14,807 5,408

Minority Interest 1,314 864 0 0 Capital WIP 4,636 4,188 945 3,738 Change in Debt 610 -255 275 218

Profit from Assoc. 0 0 1,479 1,435 Others 3,056 4,963 30,016 19,491 Change in Equity 17 79 48 273

Recurring PAT 3,939 6,154 13,380 16,671 Inventory 5,268 6,455 3,084 3,359 Others -1,100 -1,446 -5,952 2,067

Extraordinaires 0 0 4 24 Account Receivables 5,125 5,622 326 500 Financing C/F -474 -1,622 -5,629 2,558

Reported PAT 3,939 6,154 13,377 16,647 Other Current Assets 3,640 4,277 757 863 Net change in cash -1,209 -3,292 2,381 26,907

EPS (Rs) 145.4 227.1 493.6 614.3 Cash 15,080 15,477 6,321 33,228

RoE (%) 21 % 27 % 43 % 37 %

DPS (Rs) 30.0 50.0 100.0 100.0

Total Assets 53,365 64,075 49,390 69,907

RoIC (%) 13 % 17 % 35 % 36 %

CEPS (Rs) 194.1 308.2 544.1 671.9 Non-cash Working Capital -5,004 -7,838 -7,657 -9,848 Core RoIC (%) 26 % 28 % 75 % 306 %

FCFPS (Rs) -25.0 -59.1 296.1 899.4 Cash Conv Cycle -26.8 -32.7 -45.3 -51.1 Div Payout (%) 24 % 26 % 24 % 0 %

BVPS (Rs) 761.5 931.2 1,350.7 1,972.3 WC Turnover -13.6 -11.1 -8.1 -7.1

P/E 206.9 132.4 60.9 49.0

EBITDAM (%) 10 % 13 % 27 % 31 % FA Turnover 3.2 3.2 6.9 5.6 P/B 39.5 32.3 22.3 15.2

PATM (%) 6 % 7 % 22 % 24 % Net D/E -0.7 -0.6 -0.2 -0.6 P/FCFF -1,203.8 -509.0 101.5 33.4

Tax Rate (%) 22 % 29 % 31 % 32 % Revenue/Capital Employed 2.1 2.4 1.6 1.5 EV/EBITDA 113.4 72.7 48.2 49.0

Sales growth (%) 7 % 28 % -29 % 14 %

Capital Employed/Equity 1.7 1.6 1.3 1.0

EV/Sales 11.9 9.3 13.2 15.1

FDEPS growth (%) 21 % 56 % 117 % 24 %

Dividend Yield (%) 0.1 % 0.2 % 0.3 % 0.3 %



Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 Vishad Turakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 SubhamSinha [email protected] 91-22-43320631

Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 SwetaSheth [email protected] 91-22-43320634

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Maulik Patel Oil and Gas [email protected] 91-79-61909519 IleshSavla [email protected] 91-22-43320666

PrafulBohra Pharmaceuticals [email protected] 91-79-61909532 Manoj Kejriwal [email protected] 91-22-43320663

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Dharmesh Mehta [email protected] 91-22-43320661

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Shreepal Doshi [email protected] 91-79-61909541

Varun Baxi [email protected] 91-79-61909527

Vikas Jain [email protected] 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

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Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

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